An investor is evaluating two commercial properties in Lethbridge. Property A is offered under a gross lease where the landlord pays all operating expenses. Property B is offered under a triple net (NNN) lease where the tenant pays all operating expenses, including property taxes, insurance, and maintenance. If both properties have the same base rent of $20 per square foot and comparable market values, and operating expenses for Property A are estimated at $8 per square foot, which statement accurately reflects the effective cost to the tenant?

Question: An investor is evaluating two commercial properties in Lethbridge. Property A is offered under a gross lease where the landlord pays all operating expenses. Property B is offered under a triple net (NNN) lease where the tenant pays all operating expenses, including property taxes, insurance, and maintenance. If both properties have the same base rent of $20 per square foot and comparable market values, and operating expenses for Property A are estimated at $8 per square foot, which statement accurately reflects the effective cost to the tenant?

Answer options:

• The tenant in Property A will have a higher total occupancy cost than in Property B.
• The tenant in Property B will pay $28 per square foot in total occupancy costs. ✅ The tenant in Property A will effectively pay $20 per square foot for occupancy.
• The tenant in Property B will have a lower overall risk for unexpected expenses.

Correct answer: The tenant in Property A will effectively pay $20 per square foot for occupancy.

Explanation: Under a gross lease, the tenant pays a flat rent, and the landlord covers operating expenses. Therefore, the tenant's effective occupancy cost is their base rent, which is $20 per square foot. In a NNN lease, the tenant pays base rent plus all operating expenses.